USD/JPY edges higher after Fed taper, US consumer spending data

The yen declined against the US dollar, following Fed decision to cut monthly bond purchases, which tend to weaken the US currency. The US dollar was also supported following data that showed consumer spending increased the most in three years.

USD/JPY hit a session high at 102.80 at 14:03 GMT, after which consolidation followed at 102.69, adding 0.41% for the day. Support was likely to be received at January 29th low, 101.84, also the pairs weakest since December 6th, while resistance was to be met at January 29th high, 103.36.

The US Department of Commerce reported today that consumer spending rose by 3.3% in the fourth quarter, marking the highest advance in three years. The data was preliminary and it came after a 2% increase in the previous quarter, while analysts had expected consumer spending will rise 3.7% in Q4. Consumer spending is regarded as a crucial economic indicator as it accounts for almost 70% of the total economy.

A separate report by the US Bureau of Economic Analysis revealed the advance gross domestic product of the country increased 3.2% in the fourth quarter, in line with analysts forecasts. The US economy expanded at 4.1% in the prior three months, which was the fastest pace since the first quarter of 2010.

However, data also revealed the number of initial jobless claims for the week ended January 25th, rose by 19 000 to 348 000, exceeding analysts estimates of an increase to 330 000. The number of jobless claims in the previous week was upward revised to 329 000 from earlier estimates of 326 000.

Greenbacks demand continued to be supported after the Federal Open Market Committee announced yesterday that it will reduce the pace of its monthly bond purchases to $65 billion from the current $75 billion. The FOMC cited improvements in the labor market and the pace of the economic growth, which started accelerating in recent quarters, in consonance with its plan to gradually withdraw from bank’s unprecedented accommodative policy. The central bank has undertaken three rounds of bond purchases since 2008, known as quantitative-easing stimulus strategy.

Fed also maintained its benchmark interest rate unchanged at 0.00%-0.25% in line with expectations.

The central bank will probably continue to pare stimulus by $10 billion at each policy meeting before exiting the program in December, according to a Bloomberg News survey of 41 economists, conducted on January 10th.

Meanwhile, the yen was pressured earlier in the day, as data showed the nations retail sales unexpectedly slowed their annual pace in December.

The Japanese retail sales slowed their annual pace to 2.6% in December, from an upward revised 4.1% in the previous month. Analysts had projected that retail sales will increase by 3.9%. On a monthly basis, Japans retail sales rose 0.8% in December, after a 2% gain in the preceding month.

There are growing concerns that BoJ will have to increase the scale of its asset-purchasing program this year, which puts heavy pressure on the yen. Bank of Japan has been purchasing more than 7 trillion JPY (68.4 billion USD) of government bonds each month in its struggle to achieve 2% inflation in two years since April 2013.

Japan is in a process of recovery after a 15-year period of deflation.

Elsewhere, GBP/USD reached a session low at 1.6445 at 10:07 GMT, after which consolidation followed at 1.6458, losing 0.64% for the day. Support was likely to be received at January 21 st low, 1.6400, while resistance was to be encountered at January 29th high, 1.6606. On January 24th, GBP/USD touched 1.6668, the pair’s highest since May 2nd 2011.